July 21, 2016
FHA loan rules for Home Equity Conversion Mortgages (HECM) have been modified by the agency to include approval of third party fees for property tax verification.
According to FHA Mortgagee Letter 2016-10, the third party fees will be added to the list of approved charges associated with FHA HECM loans, but the verification fees must meet FHA requirements.
“A Third Party Property Tax Verification Fee is a fee charged to the mortgagee by a third party to verify the mortgagors property tax payment history and the annual amount of property taxes due for a specific property” states the FHA Mortgagee letter. “FHA is adding the Third Party Property Tax Verification Fee to the list of allowable charges and fees that may be paid by the mortgagor.”
According to the mortgagee letter, the tax fee “must be a reasonable and customary amount” and cannot exceed the actual cost of services rendered.
Under the FHA HECM loan program, borrowers are required to be current on property tax obligations and continue to do so during the term of the loan as a condition of loan approval. Failure to remain current on property tax obligations during the term of the HECM loan can be considered grounds for declaring the loan amount due in full.
FHA HECM loans, also known as FHA reverse mortgages, allow qualified borrowers aged 62 or older to apply for a loan based on the equity in their homes. There are no monthly payments; the loan is paid in full when the borrower dies or sells the home. Property taxes are usually paid out of an escrow account set up at the time of the transaction.
FHA HECM loans have a variety of requirements, and failure to meet these requirements can make the loan due in full (which is one reason why HECM borrowers are required to have reverse mortgage counseling as a condition of loan approval). In addition to the previously mentioned property tax rules, HECM loans require borrower occupancy and can be used only on approved properties. Primary residences may qualify, but vacation homes, time shares, and any other property not used as the borrower’s home address or primary residence will not qualify for a HECM loan.
In addition to the new requirements for the tax service fee, there is also a requirement for lenders that governs how the fee can be handled. “Mortgagees may not charge a Tax Service Fee, which is a fee for services related to obtaining and monitoring tax bills and tax payments after closing.”
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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